Sydney-Manila competition to intensify as Qantas and Philippine Airlines expand

Competition in the Sydney-Manila market will further intensify next summer as Qantas and Philippine Airlines (PAL) add capacity.

Highlights:

The Sydney-Manila route has experienced rapid growth over the last four years with the number of flights nearly tripling;

Cebu Pacific, which launched services to Sydney in 2014 and introduced a seasonal daily flight in late 2017, is now the market leader;

The Sydney-Manila route will grow further next summer as Qantas introduces a daily service and Philippine Airlines adds a second daily frequency.

Qantas is introducing a seventh weekly flight on the Sydney-Manila route from 7-Dec-2018. Qantas has been offering five to six weekly flights on the Sydney-Manila route, its only Australia-Philippines one, for the last couple of years. Prior to the suspension of Brisbane-Manila in 2013, Qantas operated only two to three weekly flights on Sydney-Manila.

Introducing a daily product should improve Qantas’ competition position in the Sydney-Manila market, particularly for business and corporate traffic. It also should enable Qantas to avoid further market share losses.

Qantas’ market share in the Sydney-Manila market has declined significantly over the last few years due to expansion from PAL and Cebu Pacific. PAL upgraded Sydney to daily in 2015 and is planning to introduce a second daily flight to Sydney by the end of 2018.

Sydney-Manila capacity share: Sep-2011 to Oct-2018

Source: CAPA – Centre for Aviation & OAG

Cebu Pacific launched Sydney-Manila in Sep-2014 with four to five weekly frequencies. Cebu Pacific introduced a seasonal daily service to Sydney in late 2017 but continues to offer five weekly flights during most of the year.

Five years ago, in Jun-2013, there were only seven total weekly flights in the Sydney-Manila market. There are currently 18 weekly flights and will likely be 28 weekly flights in late 2018. Peak period capacity already reached a record 20 weekly flights in Dec-2017, compared to only eight weekly flights in Dec-2013.

Total passenger traffic on the Manila-Sydney route has increased from only 151,000 in the fiscal year ending Jun-2013 (FY2013) to 391,000 in FY2017, according to BITRE data.

Qantas share of traffic between Manila and Sydney has dropped from 58% in FY2014 to only 34% in FY2017. PAL’s share also dropped, from 42% in FY2013 to 34% in FY2017, despite a large increase in traffic. Cebu Pacific has quickly become the market leader, capturing a 40% share of Sydney-Manila nonstop passenger traffic in FY2017, according to BITRE data.

Cebu Pacific should be able to capture an even higher market share in FY2018, due to the capacity increase introduced in Dec-2017, and should be able to remain the market leader in FY2019. However, PAL and Qantas may be able to regain some market share in FY2019 as they add capacity.

While Qantas’ traffic to the Philippines has been relatively flat for the last few years, it has been able to maintain by far the highest load factor, apparently giving the Australian carrier confidence to upgrade the route to daily. Qantas recorded an average load factor of 85% on Sydney-Manila in FY2017 compared to 74% for Cebu Pacific. A Sydney-Manila load factor figure for PAL is not available but PAL’s average load factor across all its Australia routes was only 65% in FY2017.

PAL has been trying to boost its performance in the Sydney market by improving its product and connectivity beyond Manila. PAL now deploys retrofitted A330-300s to Sydney, featuring lie flat business class seats and a premium economy cabin. The second daily flight will be operated with smaller A321neos, which also feature a lie flat product in business but no premium economy option. The second daily flight will further improve connectivity, enabling PAL to offer quick connections in the Sydney-London market in both directions on a daily basis.

Local demand in the Sydney-Manila market is growing rapidly, driven by a surge in Australian visitor numbers to the Philippines and Filipino visitor numbers to Australia. Sixth freedom traffic is also growing from a very small base. However, the Sydney-Manila market is not yet big enough to support 28 weekly flights. Yields and load factors will inevitably come under pressure as both Qantas and PAL add capacity.